Province Législature Session Type de discours Date du discours Locuteur Fonction du locuteur Parti politique Nouveau-Brunswick 48e 1e Discours sur le Budget 21 mars 1975 M. Allen Edison Stairs Ministre des Finances PC Mr. Speaker, it is with great pleasure that I rise for the first time to introduce the traditional motion of supply for consideration of this House and to deliver the budget address. I am proud to have been chosen to carry out this important responsibility, and I want to assure members that I am well aware of the seriousness of the task. We face difficult economic circumstances this year, most of which have origins far beyond our borders, but I believe that this budget will do much to stimulate our provincial economy. Mr. Speaker, I also want to express to you the confidence that I feel in your continued responsibility as Speaker of the House. You have always conducted the affairs of this assembly with fairness, impartiality and competence, and you have graced this assembly with a dignity and stature which we are all proud to share. Mr. Speaker, before getting into the formal part of my speech, I would like to say a few words about this particular book. I was extremely pleased and happy this morning to have the Press Gallery makes me a presentation of it and I want to express my sincere thanks to them for it. I hope that you have noticed that the title is "When in Doubt, Mumble." I wish to assure the Press Gallery, Mr. Speaker, and yourself that although some of you may think from time to time this afternoon that I am mumbling, it is certainly not because I am in doubt. Mr. Speaker, this is the first budget of this government's second term of office, and judging from the results of last November's election, my predecessor, the hon. member from Edmundston, was so successful during the past four years that I stand here in some trepidation. His accomplishments and achievements have set a standard for all Ministers of Finance to follow. But I want to make it clear that though this government may have a new Minister of Finance, this does not signal any alteration in the fundamental fiscal principles for which this government stands. Like my predecessor I am bringing down a budget which does not increase taxes. In fact, this budget once again will propose further tax reductions to benefit the people of New Brunswick. Consistent with previous budgets of this government, the objectives of this budget are to foster strong economic development and growth; to provide further significant improvements in the quality of social services available to our citizens, and to continue assisting our municipalities to provide a high standard of local services. We pledge to work diligently to achieve these objectives. We shall do so within a sound fiscal framework, good tax policies and careful management of government programs. This year, Mr. Speaker, the budget has another specific and short-term objective-to deal with the immediate economic problems which are facing this province due to the recessions that have affected the Canadian and United States economies in recent months. I will say more on this topic later in this address. Before I present the budget plan for the fiscal year 1975-76, I would like to review the economic events of 1974; report to members on the current financial position of the provincial government, and discuss certain important matters in the field of intergovernmental affairs. A few days ago, Mr. Speaker, I tabled the annual review of the New Brunswick economy entitled "The New Brunswick Economy 1975. This review contained an assessment of the main events, international and national, which affected economic development in New Brunswick in 1974, together with a description of economic conditions in the province. This afternoon, therefore, I will provide only a brief summary. International In 1974, the world economy moved into one of the most severe recessions of the postwar era. Virtually all western industrialized nations had to contend with slow growth, world-wide inflation, large deficits in trade, and unstable exchange rates. Part of the burden was the enormous current account deficit with the oil-exporting countries, created by the quadrupling of world oil prices in late 1973. While all developed countries were adversely affected by the increased price of oil, the impact was most severe on the United Kingdom and Italy. Closer to home the United States experienced its worst economic performance in 28 years. Real Gross National Product declined 2.2 per cent below the 1973 level. The fall in output was accompanied by continued inflation and increasing unemployment. Canada The Canadian economy performed much better because, as an oil producing nation, we were cushioned from the full impact of the increase in oil prices. Canada also benefited from the momentum of growth built up in 1973. The result was growth in real Gross National Product of 3.7 per cent for the year, although output declined in the fourth quarter. Growth in the Canadian economy in 1974 reflected trends which initially became evident in the last half of 1973. By then the basic impetus for growth had shifted from personal consumption expenditures to business fixed capital investment. At the same time, a substantial increase in inventory investment occurred. These trends signalled the beginning of a downturn. By the second half of the year, housing and exports had weakened. Prices and costs increased at rates not experienced since the Korean War. Many of the inflationary pressures that emerged in the previous year continued throughout 1974, yielding price increases in the order of 13 per cent. After midyear, the main pressure came from wage increases rather than from high consumer demand. In character with normal cyclical patterns, employment growth did not stabilize until November. As a result, the national unemployment rate did not significantly increase until December, when it climbed to 6.1 per cent. New Brunswick Although there were increasing signs of economic sluggishness in late 1974, the New Brunswick economy appears to have experienced a higher rate of growth than that of the nation. Preliminary estimates indicate that the Gross Provincial Product registered an increase during 1974 of about 19 per cent. When allowance is made for an estimated 13 per cent price component, real growth approached 5.5 per cent. Business capital formation was strong and was one of the most significant factors in the growth of the provincial economy in 1974, but housing weakened in comparison to the record year of 1973. Consumer demand increased substantially, and government current and capital spending added appreciably to the strength of the economy. Exports continued to make a major contribution to the economic growth of our province. The value of domestic exports reached a record level of $719 million in 1974. This was 35 per cent higher than in 1973, well above the rate of increase in Gross Provincial Product. Following the national trend, employment increased, showing a 4.1 per cent advance. For the year, the unemployment rate averaged 9.2 per cent-the same as in 1973. A continued high rate of population growth, strong labour demand and the institution of new and revised social security programs helped to produce a record increase in personal incomes during the year. Personal disposable incomes rose more rapidly than total personal incomes, because of the indexation provisions of the personal income tax and because of federal and provincial tax cuts made during the year. Disposable incomes surpassed the $2-billion mark, climbing by a record 19.6 per cent, compared to 10.9 per cent in 1973 and a 7.9 per cent average annual rate during the sixties. Financial Review of 1974-75 Mr. Speaker, the economic conditions I have just described provide members with a background against which the financial operations of the current fiscal year can be assessed. Last year the budget plan reflected the adoption of a moderately expansionary fiscal stance, in anticipation of a slower rate of real growth than experienced in 1973. These expectations were fulfilled, and the fiscal position adopted at that time was, I believe, a sound one. However, economic conditions in early 1974 were quite uncertain, and no one at that time expected inflation to be as severe as we have seen it to be. Like any other business, government costs, as well as revenues, are affected by inflationary pressures. In financial terms, this has brought about upward revisions to our original revenue and expenditure estimates. It is with pleasure that I now report to the House on the budgetary and non budgetary accounts for 1974-75. Members should be cautioned, however, that this report is a preliminary one and will not be final until the fiscal year is completed and the accounts audited. Budgetary Accounts Gross ordinary revenues for 1974-75 are now forecast to increase by $39.8 million above the original budget estimates. Capital recoveries are expected to be in the order of $33.8 million, a decline of $8.6 million. Total budgetary revenues, therefore, are expected to be some $31.2 million above original budget figures, an increase of 4.2 per cent. The anticipated increase in ordinary revenues has come from three main sources. A significant federal adjustment to our collections for previous years, combined with rapid growth in corporate profits during 1974, will result in an increase of $11. 2 million in our corporation income tax returns. Higher prices and continued strength in consumer spending are forecast to yield some $7 million more from the social services and education tax than we had predicted. Finally, we have been informally advised by federal officials that a substantial advance payment under the revenue guarantee provisions of the Fiscal Arrangements Act will be made during 1974-75 amounting to some $14 million. This is the first year for such advance payments. Therefore, this amount should be regarded as a windfall gain which will not reoccur. Together, these three sources make up 81 per cent of the increase expected in our ordinary budgetary revenues. Offsetting these increases are expected reductions of $14.2 million from our original estimate of shared cost and capital recoveries. Following are the changes in budgetary revenues from the original budget estimates: On the expenditure side of the accounts we anticipate an overall increase of $39.2 million, consisting of $17.8 million on Ordinary Account and $21.4 million on Capital Account. The total increase represents a small 4.9 per cent increase over the original budget estimates. In fact, increases in ordinary budgetary expenditures were kept to 2.7 per cent above the original budget estimates, despite inflationary pressures on costs of program operations. Mr. Speaker, this is good financial management, for it enabled us to accelerate capital investment projects badly needed in our province. The revised budget for 1974-75 is as follows: The result of these changes is that even with the tax reductions implemented by this government last year the Ordinary Account surplus is expected to be $59 million, or $22 million above the original budget estimate. This is a good record, approaching the actual 1973-74 surplus of $64.3 million. I say it is good because the revised Ordinary Account surplus exceeds 50 per cent of the revised Capital Account deficit, which means that we are paying for a very substantial portion of our capital program as we go along, thereby reducing the burden on future generations of taxpayers. Because of the shortfalls in shared cost recoveries and capital recoveries, which are expected to amount to some $14 million, the net debt is anticipated to rise moderately over the original budget figure by $6.7 million. I do not apologize for this increase. Rather, I would remind members of my predecessor's remarks in his budget speech of last year when he indicated that a portion of the planned net debt increase was due to the tax reductions announced at that time. This is still the case. The additional increase, as I have already demonstrated, is due almost entirely to expenditures on capital investments. During the course of the session, the House will be presented with a bill setting out special warrants issued during the fiscal year 1974-75 in respect to the budgetary accounts. The total will be in the order of $46 million. Of this, we expect approximately $15 million to be applied to the Ordinary Account budget. Members should note that most are for quite small amounts, largely for items affected by increased costs or items which were unforeseen a year ago. Only two are for a million dollars or more and are devoted to road maintenance and snow control by the Department of Highways. Special warrants applied to the Capital Account will amount to some $31 million. The major items are in the Department of Highways for highway and bridge construction; in the Department of Education for school construction, and in the Department of Health for hospital construction. In all cases, Mr. Speaker, these represent expenditures which have accelerated capital investment projects in the province, adding to our capital assets and contributing to the improvement of our economic and social environment. Non-Budgetary Accounts First I would like to comment briefly on capital market operations in 1974-75 during the first half of fiscal 1974-75, North American bond markets were influenced primarily by fiscal and monetary policies designed to reduce double-digit inflation. Interest rates rose to historically high. levels, and the usual pattern whereby short-term rates are lower than long- term rates was reversed for a time. At the end of August, for instance, provincial long-term bond yields averaged 10.90 per cent while the bank prime rate in Canada was 11-1/2 per cent and in the United States 12 per cent. By the end of February 1975, provincial bond yields had declined to a 9- 112 per cent level and bank prime rates had declined even further to 9 per cent in Canada and 8-112 per cent in the United States. Against this background, the province was in the fortunate position of not having to borrow funds on the public market. Instead, surplus funds were available which enabled us to take advantage of unusually high short-term interest rates. During the year, the province borrowed a total of $38,344,000 from the Canada Pension Plan Investment Fund for a term of 20 years, at an average interest rate of 8.55 per cent. Debenture issues of the New Brunswick Electric Power Commission in the total amount of $150 million were also guaranteed by the province as follows: $50 million issued in April 1974 in United States funds $25 million issued in October 1974 in Canadian funds $75 million issued in January 1975 in United States funds. Sinking fund earnings are expected to be somewhat higher during 1974-75, up to $8.8 million, due in part to the unusually high yields obtained on sinking fund investments during 1974. Sinking fund instalments will remain as budgeted, at $21.7 million. Revised gross loans and advances are expected to be above the forecast level, at $49.9 million. With recoveries slightly down to $6.5 million, net loans and advances for 1974-75 are expected to be revised to $43.4 million. Members will be asked to vote special warrants on the Loans and Advances Account totalling $19,250,000 in Vote 16-80, for charges under the Industrial Development and Expansion Act. Included are $2,250,000 for the purchase of some two-months' production of the Chatham plant of Airscrew- Weyroc (Canada) Ltd., $500,000 for the operation of Atlantic Forest Products Ltd., $2 million to upgrade and operate the textile mill at Marysville, $1 million for the purchase of the Simms plant at Grandview Industrial Park, $500,000 for Venus Electric, and $13 million for Bricklin Canada Ltd. In addition, a special warrant of $4 million for advances to the New Brunswick Transportation Authority will be presented for completion of Rodney Terminal. Additional smaller warrants will also be presented. Virtually all of the increase in the loans and advances account is due to the support and protection of industries which playa vital role in the New Brunswick economy. We have been advised by the investment dealers who act as our fiscal agents that the province can finance sums well in excess of $100 million without difficulty during the next several years. Therefore, I want to reassure members that these financial requirements are well within our reach, given the healthy growth of the provincial economy, and the soundness of the province's financial position. The following table summarizes the changes in non-budgetary accounts and their effect on anticipated financial requirements for the current fiscal year. Revised Financial Requirements 1974-75 ($ Millions) Mr. Speaker, I would now like to spend a few moments reviewing events in the field of intergovernmental affairs. During 1974-75 the government has been active in discussions and negotiations with the government of Canada and other provinces on a wide range of topics. Last year my predecessor reported that agreement had been reached to extend the existing formula for the financing of post-secondary education for two years, to March 31, 1976. The government has since appointed Dr. Catherine Wallace of the Maritime Provinces Higher Education Commission to be a member of an interprovincial task force reviewing these financial arrangements, in preparation for negotiation with the federal government of a new agreement to replace the current agreement. The Department of Finance will assist Dr. Wallace in these deliberations. So far as health cost sharing arrangements are concerned, I regret to report that a solution to the current differences among the provinces and the federal government has not been found. However, federal-provincial discussions will continue throughout 1975 in the hope that an agreement acceptable to all provinces and the federal government can be reached. The review of the social security system in Canada, currently under way, has progressed to a point where we expect a definite proposal to be put forward shortly for consideration by the federal and provincial Ministers of Finance. Members will recall that the goal was to develop a model social security system incorporating the several dimensions of social insurance, income supplementation, training and rehabilitation, and minimum wage legislation, within a national plan. At present, it would appear that the review will result primarily in modifications to the present income support program, commonly known as social assistance, and will incorporate elements of income supplementation for those employed on very low incomes. Much credit must be given to the former Minister of Social Services, the hon. member for Riverview; who contributed so much to these discussions. I want also to extend my best wishes to the new Minister of Social Services as he enters this enormously complex policy field. One of the most significant areas of discussion has been that of energy and oil pricing occasioned by the greatly increased costs of foreign crude oil, and the uncertainty of supply. Within a few weeks New Brunswick will participate in a major federal-provincial conference on oil and gas pricing, at which a new Canada-wide price for oil is expected to be negotiated. The government has devoted considerable resources to this subject, and has also been cooperating closely with other Maritime governments through the Council of Maritime Premiers, in efforts to develop a consistent and coordinated approach towards energy policy, especially conservation and pricing. Mr. Speaker, I must take a moment in this context to say a few words about equalization. A year ago the Premier of this province spoke eloquently at the First Minister's Conference on Oil Pricing about the importance to this region of the principle of equalization. He made clear this government's objection to the federal government's proposal to alter this principle fundamentally by excluding provincial royalties attributable to rapid price increases from the equalization formula. Partly because of his efforts, which received strong support from several other provinces, the federal government modified its position. Since that pricing agreement, provinces receiving equalization are fully equalized for oil royalties based on 1973-74 prices. Royalties based on the difference between 1973-74 prices and the new prices are equalized at one-third of their total yield. As a consequence, New Brunswick gained approximately $10 million in equalization payments from this source. However, Mr. Speaker, we have also noted with increasing concern the tendency of oil producing provinces to reduce their revenues from other sources, apparently because of substantial revenue gains from oil royalties. For example, Saskatchewan has reduced its tax rate on gasoline and diesel fuel, and Alberta has announced a reduction in its personal income tax. I have little reason to doubt there is a connection between increased oil royalties accruing to these provinces and the substantial tax reductions they have been able to make in other revenue fields. It should be made clear, Mr. Speaker, that the province of New Brunswick loses 100 per cent of the equalization attributable to these reductions in other revenues, i.e., gasoline and diesel fuel and personal income tax. And so we have a paradox. On the one hand, we gain equalization attributable to oil price increases at only one-third of the real revenue gain from this source. On the other hand, when oil producing provinces are able to reduce other taxes because their oil royalties have risen sharply, we lose all of the equalization attributable to these other tax sources. Mr. Speaker, this is precisely the kind of situation that the Premier objected to a year ago, when the federal government tampered with the principle of equalization. We objected to it and we still object to it. The equalization of all provincial revenues is essential to the health of Confederation. The Fiscal Arrangements Act, which authorizes equalization payments, terminates on March 31, 1977. During the negotiation for a new agreement over the next two years, we shall continue to put forward the position that the essential principle inherent in the formula be upheld. We shall be willing to negotiate, but we shall not be willing to compromise the fundamental principle. With respect to the vitally important areas of manpower training and community employment, I am pleased to announce that negotiations have been completed for the signing of new agreements between the province and the government of Canada. These agreements will strengthen our ability to ready our potential labour force for new jobs in future years. The government also continues to support and participate in the activities of the Council of Maritime Premiers and is hopeful that the work of the new Maritime Provinces Higher Education Commission will substantially assist in rational and effective development of provincial and regional institutions of higher education in the Maritimes. Two additional areas in the field of intergovernmental affairs that I have not dealt with here are the General Development Agreement and provincial-municipal relations. Because they form an integral part of the budget plan for 1975-76, I will make reference to them later in this address. Economic Outlook for 1975 Mr. Speaker, the budget plan for 1975-76 has been prepared in full recognition of the economic conditions we anticipate during 1975. I would now like to comment on the economic outlook. International and National Recent trends suggest that the current recession in the economies of western industrialized nations will be more pronounced and prolonged than anticipated in late 1974. The serious deterioration of the United States economy has led many economists to believe that real output in the United States could fall by greater than three per cent in 1975, following a 1974 decline of 2.2 per cent. The Canadian economy, heavily dependent on international economic activity and trade, cannot help but be adversely affected by such developments. The most recent forecasts indicate that real growth in the Canadian economy will be lower than 1974, ranging between one per cent and three per cent. Although inflationary pressures are expected to subside later in the year, the Consumer Price Index could advance by as much as 12 per cent. The major reasons are anticipated further increases in food prices and increased labour costs. The demand for labour will continue to be weak, while the labour force continues to grow. The result will be increasing unemployment throughout the year. The unemployment rate for Canada will probably exceed the seven percent mark-and I am speaking here of adjusted figures. New Brunswick Performance of the provincial economy should be as good as Canada's in 1975. However, we expect a lower rate of real growth than in 1974, accompanied by price increases comparable to those forecast for Canada as a whole. New Brunswick labour market conditions should be similar to those expected for the Canadian economy. Demand for labour will1ikely be weaker than in 1974, while the labour force will continue to grow. Hon. Members should be aware that in recent years labour force growth in New Brunswick has been more rapid than in Canada as a whole. Increases in our unemployment rate, therefore, should be reviewed in this context. More recently, international and national economic conditions have been a contributing factor. The answer to the unemployment problem will not be found in alarmist tactics such as are usually adopted by those who have no positive suggestions. Solutions will be found only through continued long-term efforts to strengthen our economic base, combined with concrete short-term initiatives to deal with the immediate problem. Personal incomes should continue to grow at higher rates than in earlier recessions. Of course, part of this will be due to the kind of wage settlements we are experiencing. Growth of personal disposable incomes is also expected, due to federal and provincial tax cuts. Business investment should continue to be relatively strong throughout 1975, due partly to the large capital projects already under way. Capital expenditures by all governments should also remain high, contributing to the stimulation of the economy. Housing starts should be maintained at 1974 levels, with an upturn later this year. The most serious problem facing our economy, in addition to rising unemployment, will be in our export oriented industries, because of the economic difficulties being experienced by our major export market, the United States, but current forecasts indicate that the United States economy may revive in the latter part of the year, giving us hope that the problems faced by these industries will not be prolonged. The Budget Plan for 1975-76 Before discussing the budget plan for 1975-76, I think it would be helpful if I first reviewed the budgets of this administration's last four years and noted some of their highlights. We have seen considerable economic progress in our province during the past term of office. Perhaps the best measure of this is the change in income levels of New Brunswickers during the last four years. Since 1970 the level of wages, salaries and supplementary labour income has risen by over $600 million; personal incomes have risen by over $950 million, and personal disposable incomes have risen by over $800 million. On a per capita basis they have increased, as a per cent of the Canadian average, from 74.7 to 77.2 during this period. This is clear indication that under the leadership of the present government there has been a distinct improvement in the income position of New Brunswickers relative to other Canadians. The efforts of this government have made a valuable contribution to this relative improvement. In the field of economic development, the government took several major initiatives to improve the economic environment. Major highway improvements have been completed; infrastructure to improve industrial growth has been provided in many areas; a major forest resources study was completed and is now being implemented; an equally important study of the agricultural sector is under way; a new and better FRED Agreement is now benefiting the northeast; much improved federal economic assistance to the province can be expected through the. General Development Agreement; large investments by the New Brunswick Electric Power Commission have been put into place and more are planned; assistance to industries has increased; new industries have been attracted to our province, and existing industries have expanded. We have consistently attached our highest priority to economic development and job creation, and this priority was reiterated as recently as March II in the throne speech. The quality of social services has also been significantly improved. Large investments have been made in hospital and school construction; a major reform was introduced in our social assistance program; legal aid for criminal cases has been implemented; better measures for the protection of the environment have been introduced; our housing programs have been enlarged and redirected to those who need the assistance most, and we have introduced and financed the universal medical care insurance program. Nor have we ignored our responsibilities to local government. A new and better grant formula has been devised; a stimulation grant program has been made available; the formation of a Provincial-Municipal Council has improved relationships between the provincial government and its municipalities, and the organization of municipal government has been strengthened by amalgamation. Progress of this kind costs money. Total ordinary and capital expenditures rose from $490.8 million to an estimated $833.2 million between fiscal years of 1970-71 and 1974-75, but despite this increase and despite these major accomplishments, this administration did not raise taxes. In fact, it reduced them year after year as our management capability and planning improved. Mr. Speaker, tax cuts introduced by the Hatfield government throughout its first term of office are now valued in the order of $30 million annually. This is money in the pockets of the ordinary citizen, where it belongs. The budget for 1975-76 will continue in this tradition. We will introduce new programs to benefit the people of New Brunswick and we will reduce taxes. All these changes during the last four years have been accompanied by improvements in the organization of government. We have created a new Department of Social Services, a separate environmental agency, a new Department of Supply and Services, and a new Department of Treasury Board with a full-time minister responsible for the management of government programs. To improve our planning capability, the Cabinet Secretariat was established, along with a new committee of the cabinet, the Policy and Priorities Committee. In the Department of Finance, a new Taxation and Fiscal Policy Branch was created to better advise the government on fiscal and tax measures. All of this has resulted in better machinery for the delivery of public services, improved management of the central services of government and a better budget process. Most of all, we have made real progress in our ability to formulate better plans and policies. Before I outline in greater detail the specifics of our program, I would like to say a word about the overall fiscal stance this government is adopting for 1975-76. In an economy characterized by inflation, rising unemployment and slow growth, formulation of fiscal policy is a particularly complex task. We believe this is a time to use government dollars effectively to stimulate the economy and it is a time to help alleviate the effects of inflation on our citizens. Mr. Speaker, all members are well aware of the continuing problem of inflation. I need not remind anyone in this assembly that its causes lay far beyond our borders and that a provincial government can do little by itself to solve this problem. However, this budget has been prepared in such a way as to contribute least to inflation while doing as much as possible to alleviate its damaging effects. Since we do not want to contribute to inflation, we are showing restraint in government spending on Ordinary Account, as we did during 1974-75. We are budgeting for a substantial Ordinary Account surplus. Having said that, however, the government well recognizes that many expenditure programs can contribute much to those most hard hit by inflation, and I will mention a few: a new pharmacare program will be provided for our elderly citizens; social assistance payments will increase substantially because they are now linked to the minimum wage; the day care centre program will be expanded to provide opportunities for additional members of our labour force to supplement their income, and a very substantial increase is being made in the funds available to the New Brunswick Housing Corporation to ensure increased housing assistance to our low income citizens. On the revenue side of the budget, we shall continue to counter the adverse effects of inflation by new tax cuts in 1975. These will further reinforce the tax reductions made in 1974, which continue to offset the burden of inflation to some extent. In dealing with the problem of high unemployment, the government has decided that the most significant and least inflationary impact can be made by substantially increasing government expenditures on capital investment. This choice has been made deliberately because these expenditures have a much greater impact than ordinary expenditures on the growth of the economy and its capacity to create jobs. Furthermore, these outlays create productive and permanent assets. Consequently, Mr. Speaker, we are budgeting for the highest level of capital expenditures in the history of New Brunswick. All this will result in an increase in the net debt of over $52 million, which I believe to be fully justified in the present economic circumstances. We are also anticipating slower growth this year, largely as a result of national and international economic conditions. To deal effectively with this problem requires, in our view, a substantial budgetary deficit. Mr. Speaker, there is little doubt that an increase in the net debt of the order I have indicated is within the financial capabilities of the province. By any accepted measure, the financial position of the province has consistently improved in the recent past. For example, the ratio of the total net debt to the Gross Provincial Product has dropped steadily over the last four years. A net debt increase in the order of $50 million will not change this trend. I need only remind hon. members that the highest net debt increase in recent years was that which we' inherited from the previous government in 1970-71. It stood at $53.4 million, or about 10.9 per cent of gross expenditures. Hon. members will also recall that this followed a freeze on hospital construction, the postponement of medicare, very low expenditures on school construction, a level of welfare payments among the lowest in Canada, and a staggering increase in taxes in 1969. That ratio is now projected to be 5.4 percent in 1975-76, less than one-half that of 1970-71, the last year of misadministration by the Liberal government. The following table outlines the budget plan for 1975-76: Fiscal Plan 1975-76 ($ Millions) Mr. Speaker, I want to reaffirm what I said previously about the level of our financial requirements. In the recent past the government's budgeted expenditures and revenues have grown substantially. One result has been a substantial increase in our capital assets. Last year, the Minister of Finance outlined this government's excellent record in terms of acquiring assets against the funds it borrows. He reported that by March 1, 1973 this ratio was 1.34 to 1. I am pleased to report to the House that this ratio increased to 1.52 to 1 by March 1, 1974. This continuing evidence that our capital assets are accruing more rapidly than our liabilities convinces me that the province's financial position continues to improve, providing a solid base of credit for future borrowing requirements. Mr. Speaker,I would now like to present to the House the most important programs in the budget plan and describe their relationship to the budget objectives I put forward at the beginning of this address. As the session proceeds and details of the estimates are examined by the House, it will become apparent to members that the government has taken positive and major steps to stimulate the economy and improve social conditions. Economic Development This government has always emphasized one main priority-economic development. Additionally, this year we face the challenge of an international economic situation which could endanger the progress which New Brunswickers have worked so hard to achieve. However, it is the government's intention to implement measures to deal with our economic problems in such a way as to contribute to our continuing efforts to establish a solid economic base for the future growth of our province. With this in mind we have budgeted for the highest level of government capital expenditures in the history of the province. These expenditures will put into place investments essential to the economic growth of New Brunswick. They will directly assist our industries in improving their ability to compete effectively in national and international markets, and they will provide for better management and protection of our basic natural resources on which we are so dependent. In doing so, these expenditures will generate more jobs, stimulate greater economic activity in the private sector, and help to alleviate the adverse effects of current recessionary conditions. An important instrument for furthering economic progress in the province during the coming year is the General Development Agreement. The programs administered under the various sub-agreements will make substantial contributions to agriculture, forestry, fishing, manufacturing and tourism. As hon. members will be aware, New Brunswick has so far signed more agreements with the Department of Regional Economic Expansion for more money than any other province. Under the General Development Agreement provision is made for the continued construction of Route II, and a five-year program of further work on the Saint John throughway and Wheeler Boulevard in Moncton. Direct aid to industry will amount to some $3 million, including projects to assist our agricultural and fishing industries. Programs costing over $5 million will provide for better management and development of the province's resources, and provisions in excess of $3 million have been made to undertake the important task of developing new programs and identifying additional development opportunities. Investment on roads and other infrastructure will exceed $36 million, including provision for regional industrial commissions and for servicing industrial parks in areas where industrialists have made firm commitments. Total planned expenditures under the General Development Agreement are expected to exceed $50 million next year. In addition to the large scale investments envisaged under the General Development Agreement, more than $17 million has been allocated for the FRED Northeast Agreement in the coming year. The major expenditure under the FRED Agreement will amount to $10 million for the construction of schools and municipal infrastructure. In addition, $3 million has been provided for economic development, $3 million for educational services and the continued construction of the Acadian Village, and $1 million for housing assistance and related programs. These two agreements, the General Development Agreement and the FRED Northeast Agreement, together incorporate expenditures exceeding $67 million in the coming year for the direct stimulation and development of our economy, and the creation of new jobs. In addition to these agreements, stimulation grants provided to municipalities for the upgrading of capital facilities will assist in job creation at the community level. Under several ongoing programs, the government will continue to strengthen the province's economic base. The agricultural and fishing industries will continue to be assisted through loans to provide for capital improvements essential to their success. Increased loans will also be provided to the New Brunswick Housing Corporation so that additional capital construction can take place during the current year, helping to stimulate this important sector of our economy while at the same time improving the quality of our housing stock. Capital investments for our school and hospital programs will be maintained at a high level, not only to guarantee that the quality of health and educational services will be improved, but also to ensure that economic activity in the province this year will be maintained at a high level. Mr. Speaker, these are a few of the economic highlights of this budget designed to foster long-term economic growth and short-term stability, through direct investment, aid to industry, and better management of our resources. I believe that the programs which I have just described will contribute effectively to long-term economic growth as well as the direct stimulation of the economy this year. Together with other major initiatives which will be covered later in the session by my colleagues and which will span every sector of the economy, they will foster economic stability, economic expansion, the creation of new jobs, and the provision of higher incomes to our citizens. And finally, shaping our expenditure policies in this way will contribute less to inflationary pressures than the alternative of expanding ordinary expenditures, which add little to capital investment which is essential to the continued growth of the provincial economy. Mr. Speaker, this administration has always balanced its concern for economic development and higher standards of living with recognition of its responsibility to provide better public services for our citizens. Let me outline briefly some of the new social programs for which funds are provided in this budget. Improved health services continue to be vital to our people. As was announced in the speech from the throne, a new prescription drug program for our senior citizens will provide prescription drugs at no cost to citizens over 65 years of age. This program will be .ready to go into operation on October I, and will do much to alleviate inequities arising from the heavy burden of drug costs on senior citizens who tend to suffer more from ill health than the rest of us. Funds will be provided for the commencement of the construction of the new Saint John Regional Hospital, and when this is completed, the range of specialized health services will be greatly improved. Funds will also be made available to renovate the nursing schools at the Georges Dumont Hospital in Moncton and the Chaleur Hospital in Bathurst. These renovations will ensure a continuing supply of professional nurses to meet the needs of the province's health care system. Dental services to school children will be expanded, adding an additional grade of students to the program. Provision has been made for grants to assist in the construction of 300 nursing home beds; to implement the province-wide ambulance program, and to operate the new Dr. Everett Chalmers Hospital in Fredericton which is expected to open later in the fiscal year. Mental health outpatient services will be expanded to continue to ensure early identification and treatment of mental illness. In the field of education, a capital budget exceeding $30 million will be provided for school construction. Of this amount, over $20 million will be available for continuing construction and over $9 million will allow for the commencement of new schools. A capital budget of $9.4 million has been provided for the Maritime Provinces Higher Education Commission, largely to carry on with work on facilities already under construction, and $4.3 million will be made available to the New Brunswick Community Colleges for completion of the addition to the Saint John Institute of Technology. The day care program begun in 1974-75 will be expanded to encompass all areas of the province in 1975-76. Further assistance to low income groups will be made available through an expansion of the cooperative housing program to include Fredericton, Moncton and Bathurst. Funds for home improvement loans will continue to be provided for both senior citizens and other groups. More attention will be placed on the protection and improvement of our environment and a new Department of the Environment will be established. Funds will be provided for a new environmental information and education program, for improved monitoring of air quality in the Saint John area, for extension of present programs to manage the surface water quality of the province and for better enforcement of water-well regulations. I am also happy to announce, Mr. Speaker, that the legal aid program introduced in January 1972 will be extended to civil and domestic matters. This will do much to provide more equitable. treatment for the socially and economically disadvantaged citizens of the province. Progress in this important area is a tribute to the efforts of the former Minister of Justice, the hon. member for Kings West. The government continues to be very conscious of its responsibilities to our local governments. This year, we are providing a substantial increase in unconditional grants and a continuation of the stimulation grant program. This will implement the government's commitment to upgrade facilities and services in those municipalities where the provision of local services through municipal financing alone would place an excessive burden on local residents. Mr. Speaker, one of the main responsibilities of government is efficient management of the taxpayers' money. I have already reported on measures we have implemented to achieve this goal. This has been and will continue to be a prime objective of this administration. This year we have taken a number of further steps to improve the capabilities of the government to manage the public affairs of this province. I lave already mentioned the new Department of the Environment. I also want to note that a number of planning units have been established under the General Development Agreement, which will produce a substantial improvement in the capability of our resource departments to formulate new development initiatives and to implement those already chosen. In addition to modifications at the departmental level, we have established two new cabinet committees-the Economic Policy Committee and the Social Development Policy Committee. These committees have been created in order to deal with a perennial difficulty, that of bringing together at the cabinet level the information and analysis necessary to deal effectively and comprehensively with what are most often many-sided problems. This new structure at the cabinet level will enable ministers with particular departmental concerns to focus attention more broadly on social and economic matters, thereby adding to the effectiveness of government decision-making. Additionally, departments will benefit from the broader issues to which their ministers have been exposed as they prepare programs and plans affecting specific sectors of our economy or selected groups in our society. Mr. Speaker, I would also like to remind hon. members that in 1972 this government increased all pensions being paid to retired civil servants and teachers to partially offset increases in the cost of living. Legislation was also introduced at that time to provide for increases in pensions up to a maximum of two per cent per annum. Since then, however, inflation has far exceeded most predictions and has resulted in serious erosion of the purchasing power of people living on fixed incomes. The government recognizes that this is an acute problem, and that pensioners have little defence against these economic pressures. The government is concerned with the welfare of its civil servants and teachers, and we propose to take positive action this year to improve the legislation dealing with annual increases in pensions for civil servants and teachers. These changes will necessitate raising employees' contributions from six and one-half per cent to seven per cent of salary to cover a portion of the additional costs. Finally, Mr. Speaker, I want to express my concern about the growing wage and salary bill with which the government must deal. As the Premier has recently indicated, the government has to choose carefully among competing priorities for the taxpayer's dollar. The next four years must be a period of stabilization and consolidation as far as the size of the public service and its cost of operation are concerned. Substantial savings can only be realized by placing some restraint on the expenditures of large departments such as education, health and highways which account for the bulk of our spending. Government programs cost a great deal of money and require large staffs. For example, in this coming year we shall be spending over $258 million on all phases of education in schools, universities, community colleges and kindergarten pilot classes, excluding increases in salaries to teachers. This amounts to one-quarter of the province's entire budget and represents an average annual expenditure of nearly $1,800 on education for every family in New Brunswick. Education costs have been rising rapidly in recent years. For example, the cost per pupil based on local school board operating budgets has risen from $288.50 in 1967-68 to an estimated $801.52 for the coming fiscal year. This represents an almost threefold increase over the level of costs of eight years ago. In these circumstances, it is the government's duty to weigh carefully the educational needs of our population against the costs of providing these services. The government also has a duty to protect the public interest by ensuring that the rewards to the strong and organized sections of the community do not get out of balance with those to the unorganized and weak, who are not able to protect their own interests and who look to the government to do so. I can assure you, Mr. Speaker, that we are extremely conscious of these duties, and will stand firmly against unreasonable wage demands which add substantially to the cost of government programs without resulting in significant improvements in services to the people of New Brunswick. Revenue and Tax Policy Mr. Speaker, I would like to turn now to the revenue and tax policies contained in the budget plan for 1975-76. Traditionally, provincial governments have used their sources of revenue principally as a means of raising money to finance program expenditures for essential public services. In recent years, however, a second objective of revenue policy has become more prominent. I am referring to the responsibility of all governments to ensure a fair and equitable distribution of income. We all recognize that the federal government has far greater power and ability to affect the distribution of incomes than a provincial government. It is a national government and has the ability to tax indirectly as well as directly. Compared to the government of Canada, New Brunswick's abilities in this field are limited; also, because New Brunswick has entered into tax collection agreements in respect to the personal and corporate tax fields, our ability to influence the distribution of income in New Brunswick is further restricted. However, we feel a responsibility to do what we can, so we have already provided for major exemptions to the sales tax and have introduced a property tax credit system during our administration. We shall continue to explore the possibilities of shaping our revenue structure to further the objective of a more equitable distribution of income. Since we assumed office we have also become increasingly concerned about the way our revenue policies affect performance of the economy generally and influence specific developmental activities. We appreciate the fact that a provincial government has limited power to influence many economic activities in a province. We are closely tied to the Canadian economy and affected in many ways by its performance and the performance of other economies of the world. Our principle concern has been and will continue to be to influence national fiscal policies for the benefit of this region. In spite of these reservations, however, I believe it is fundamentally important for us to gain a better understanding of the effects our revenue policies have on general economic activity in the province. Therefore, we have begun a fundamental study of our revenue structure and its implication for economic activity. This will take some time and will be a very complex analysis, but if we are to contribute positively to the performance of the provincial economy, it is important that we continue efforts to better understand the relationship of both our revenue and expenditure policies to economic activity in this region. As you know, Mr. Speaker, economic development is a particular concern of the Atlantic region. In the past, too little attention has been given to the effect of our tax policies on the economic performance of the resource sectors of the provincial economy. In last year's budget my predecessor indicated that studies would be conducted leading to a harmonization of our provincial resource taxation policies with our development efforts in these areas. I am pleased to report that considerable progress has been made and that the government should be in a position to report on this important matter in the reasonably near future. Mr. Speaker, I have also referred to the effects of inflation on the growth of our revenues as well as on the growth of our expenditures. We are very conscious of these effects. I believe that the government, to the extent that it can, has a duty to compensate taxpayers for erosion of their earnings. This can be achieved by returning to taxpayers a portion of revenues which accrue to the government simply because of rising prices and incomes. This is one of the reasons why we have cut taxes in the past. It is also one of the reasons why we shall cut taxes once again this coming fiscal year. Three tax changes are proposed for fiscal 1975-76. The first is the phased reduction in the provincial property tax on owner-occupied residential property. This tax change has already been announced. My purpose in mentioning it here is to indicate that the legislation which will be introduced to amend the Real Property Tax Act will seek retroactive approval for this program, effective January 1, 1975. In keeping with our commitments, the amendment will also seek legislative approval to phase out this tax completely over the next four years. I want to remind members that this tax cut reduces our revenue estimates for 1975-76 by about $6 million, and because of the way we have chosen to apply the reduction, approximately 40 per cent of the total number of owner-occupied residences in New Brunswick are now no longer liable for the provincial property tax. In addition, Mr. Speaker, the value of the property tax credit to all residential property taxpayers this year will be in the vicinity of $7.3 million. The second revenue change is in the rate of the provincial personal income tax that is levied on the residents of New Brunswick. During the November election campaign, the government made a commitment to reduce the rate of the provincial personal income tax during its second term of office. I propose to begin implementation of this policy by a two per cent reduction effective January 1, 1976. Let me make clear to the House what this percentage reduction means. At the present moment the current rate of the provincial personal income tax is set at 41.5 per cent of what is known as the federal basic tax. This rate was established following the tax reform measures of 1972 and forms part of our tax collection agreement with the federal government. Effective January 1, 1976, the total amount of the provincial personal income tax payable by a resident of New Brunswick will be reduced by two per cent. That is, after the provincial personal income tax payable at 41.5 per cent of the federal basic tax has been calculated, a further reduction of two per cent will be applied to the total. The same formula will be applied to subsequent years as the reduction is further increased to seven per cent. In 1976 the value of the tax cut to New Brunswick taxpayers is estimated at $2,500,000. When the planned reduction of seven per cent has been fully applied, its annual value will have grown to approximately $14 million, a substantial sum being returned to residents of the province from the provincial treasury. The third revenue change is a small one, but nonetheless important. In keeping with our promises and to ensure that our tax policies are consistent, the social services and education tax now applied to laundry and dry-cleaning services will be removed effective midnight tonight. The removal last year of the sales tax from clothing and footwear raised ambiguities throughout the year about the treatment of dry-cleaning and laundry services. It appeared reasonable to us that consistency in the application of our tax policies warranted the removal of this particular levy. This will ensure that the services required by the public to maintain clothing will be exempt from the tax as well as clothing purchases themselves. The anticipated revenue loss will be in the order of $375,000. Conclusions Mr. Speaker, this concludes the presentation of the budget plan for 1975-76. It begins the task this government set for itself in the election of 1974 and reaffirms our determination to work hard to meet those commitments. The budget plan contributes to long-term continues to stress the importance we place on strong and independent local government. Additionally, it provides the framework necessary for a concerted attack on the short-term economic problems facing the province. The budget plan also reaffirms this government's commitment to fiscal responsibility, better management of the public service and sound revenue policies. Mr. Speaker, this budget demonstrates clearly the concern this government has for the well-being of our people. I look forward to the challenges which face us in the days ahead. Motion of Supply In this spirit, Mr. Speaker, I move, seconded by the Hon. the Premier, that the Speaker does now leave the chair and that the House resolve itself into committee of supply to be granted to Her Majesty.